The Ambiguity of what's happening in Oil vs. Inflation

[bart]

Re: The Ambiguity of what's happening in Oil vs. Inflation

Can a money supply line be superimposed on this as well?

That would be a massive job with scaling, etc.

Here's something that should help a lot though.

[GRG55]

Re: The Ambiguity of what's happening in Oil vs. Inflation

grg55,
re: majors' reserves
my understanding from some material of matt simmons is that the contracts that the majors have with various nations changes the profit split once some base dollar value of oil is pumped. the implication was that high oil prices would cause the dollar value of oil extracted to quickly reach the contractual thresholds. once reached, the majors' share of profits would be cut sharply. my conclusion was that this was a reason that majors did their planning based on low prices. if they assumed high prices, they would also have to assume that they would quickly lose a big share of profits. to your knowledge, is this understanding correct?

In most developing jurisdictions with government ownership of the mineral resources (Asia, Middle East, Russia. etc.) the foreign companies enter into Production Sharing Contracts. These vary by juridiction, but generally contain a "cost oil" provision that defines the split of production (usually in favour of the foreign partner) during the period that the foreign partner's capital investment is being recovered, and then a "profit oil" provision that defines the post-payout production split in favour of the host country. These PSC's also contain prescriptions for defining recoverable initial and subsequent capex, eligible operating costs, a mathmatical formula that adjusts for product pricing, and sometimes defines the joint marketing arrangements (so host country and foreign partners are not competing with each other with product from the same source).

During the low price cycle in the late 1990's many of these agreements contained minimum rate-of-return guarantees to the foreign partners in case prices fell even further. However, these arrangements also meant that the host governments gained the bulk of the economic rent if/when prices rose above expectations. It's those agreements, such as in Russia, that did not contemplate the level of price increases that have caused the most political problems for host governments.

In short, what these mean is that as oil prices soar, Big Oil gets little incremental benefit in these contracts, except for a faster pay-out of their invested capex in the newest projects. With the petro-dollars building up the host countries now have the financial capacity to invest directly and the need for foreign capital from Big Oil is much reduced, removing one of their historical competitive advantages. The other competitive advantage, technology, also no longer applies as most of that is coming from the service sector companies. The one exception is particularly difficult reservoirs or environments (heavy oil, thermal or miscible floods, deep water offshore, that sort of thing).

Integrated Big Oil is responding by shifting to more foreign projects in the downstream refining and petrochemical sectors (Exxon just announced a new petrochemical complex in Singapore) where they still have proprietary technologies, market access, and operating capabilities of interest to host countries.

[lobodelmar]

Re: The Ambiguity of what's happening in Oil vs. Inflation

...I have a good deal of respect for EJ, and this community is a tremendous service to all people trying to protect themselves from the multiple very bad problems headed our way, but this question in my view remains one which iTulip has not yet adequately addressed.

Lukester, it seems that all of this discussion on peak oil, as well as the discussions on infrastructure, climate change and alternative energy are doing a pretty fair job on the topic... and keeping an eye on inflation in commodity prices and the risks inherent in an ever changing world...

...My sole issue with the views of this community is that the fundamentals you acknowledge regarding the energy supply demand picture are not anywhere "officially" factored into your monetary inflation picture, with no indication you plan to formally include them going forward - and we'll be going forward into a period where everyone acknowledges oil will become ever more a factor.

I note that you wrote some early posts about the 1970's which openly acknowledged the primary role of oil in causing inflation. This has been culled entirely out of present stated positions. Charts evidence no anomalous price action in petroleum relative to other commodities, but the local evidence of strategic jockeying for this resource worldwide, and all components to do with food inflation speak loud and clear at the local level that there is an underlying issue in petroleum not encompassed by inflation alone.

Are you asking Eric to modify his ka-poom theory? I don't get that iTulip really has one overarching model, as if there were a grand unifying algorithm that you could use, punch in a few variables and out pops "Sell gold, buy stocks."

From all the talk about China, though, it might end up spitting out "take a class in Mandarin..."

...Is it possible for iTulip to set some kind of benchmark - perhaps a number, or a chartable ratio - whereby you do a location check in 24 or 36 months, to discern whether the problems (you also acknowledge) in petroleum begin to exert the same major effect upon inflation which you ascertained in previous commentary about the 1970's? To my view, those petroleum derived inflationary effects are already manifestly here. If you have already factored this, I have not seen clear reference to it.

I am pretty sure Eric wasn't doing any personal attacking at all in his response. What I get from this discussion is that as oil's price and supply issues grow in its effect on the market, the downward slope isn't going to be steep enough to cause any measurable panic without something significant, like war or embargo, to significantly affect world economics. And as things creep slowly, so will innovation into alternatives/efficiency gains, etc. So, basically, what I am asking Lukester, is it really necessary to pinpoint oil as a potentially explosive problem (pun intended ) and to include it in some kind of economic model/projection for you to feel that the iTulip community is sufficiently addressing the issue? If so, someone out there, rev up your chart-drawing software...give Lukester a chart he can be proud of.;)

[Guest]

Re: The Ambiguity of what's happening in Oil vs. Inflation

Lobodelmar -

iTulip watches petroleum price action, and sees it as driven by the world's ballooning money supply and credit. They see monetary aggregates accounting for perhaps 70%+ of the petroleum price? So if you just follow the money, you'll get the main story.

Based on very large demographics, multiplying reports of resource depletion, and a once in 200 years very large industrialisation ongoing (3 billion humans), I think it's something inverse to iTulip's ratio. I think mere monetary factors from about 2005 forward will contribute to maybe 30% of petroleum's price action, and vanishing global spare capacity will contribute the majority of the rest. It has been a liquidity driven bull market in petroleum, but a larger dynamic promises to take over that is much more deeply rooted than monetary, and will become far bigger than the current monetary inflation we are witnessing, within ten years.

That other factor presently does not engage much interest from iTulip.

I think that ratio will only steepen in the next ten to twenty years and that in turn will be the determinant of inflation. But what do I know, I'm just a layman who for several years has felt a personal but quite discriminating preference for the sources of information I am willing to trust on this topic.

When petroleum no longer wants to play ball, refusing after 150 years of soaring global population growth to feed energy reliably to another 3 billion of us who want the 10 barrels annualized per person lifestyle, the notion that man's money is the dog that wags the petroleum price tail will run into some notable contradictions on the ground. That may be soon, or even under way now. but not according to what I can find to read around here.

So if you wanted to put a convenient set of tags on these views, you could say iTulip's view (roughly) is that petroleum in 2007 revolves around what man does with money, while my view is that money (and man's industry) have revolved around petroleum (and energy) from the start - the money our central banks "play" with can goose petroleum prices short term, but does not govern that energy - and conversely it's actually the ready availability of energy that can firm up industry, and thereby the soundness of money, on any historical timescale. Starve an industrial country of energy and money weakens notably.

Here's the thing that troubles at me. iTulip have a well tried methodology, the monetary inflation thesis, which (I worry) will allow them to avoid acknowledging for years to come, that anything other than monetary inflation is sending in significant signals from the material world about prices derived from scarcity. I also know from my own past discussions that iTulip looks askance at the notion of a "significant peak" as opposed to a "gradual decline" in petroleum.

It may be just my quirky idea, but I happen to think that even a feeble or flat present growth in global gross oil production, in conjunction with readily observable events today (3 billion clamoring newbie consumers approaching) is going to snowball into the biggest story of the next fifty years, and I'm by no means the only one thinking that.

There are others who agree, seeing quite clearly that this is going to be the single biggest theme for decades. Those "other people" who agree on this go right up to national security councils and central governments, but you'd not guess that this oil depletion criticality idea was really that critical, from reading around here, where it's viewed as a "hypothesis" with "nuances".

As petroleum prices may soar to $200 per barrel (it's sure looking a lot less unlikely now than six months ago, right? ) monetary inflation will certainly be right alongside that trend, and iTulip seems to show every intention of remaining stubbornly married to it's thesis, that it's for the most part monetary inflation in action. I'm anticipating that is going to be the main course on gthis website for economic analysis of the core issues surrounding dramatically tightening energy markets.

The take-away from this (what I can fathom) seems that the 'key' to the "real world" where energy is concerned for iTulip, will remain regarded as being mainly in the monetary aggregates, and discussions here will keep coming back to this as a core reference point to understand what's developing in energy.

At a certain point, when you will see OIL SOARING to hundreds of dollars per barrel, even though it may be fully pricing GOLD (and you will probably see this!), you will also be unable to further ignore vastly increased, flaming tensions in the world as everyone jockeys for oil reserves, It seems to me it will become difficult for iTulip to retain it's original thesis at this time, that "it's all monetary inflation all the time" which is still driving the core issues. I'm wondering at what point that will be.

EJ talks about upcoming wars, as part of the cycle we are entering. I must admit I've read of this in other interesting and reputable sources as well.

One question might be, what will they all be having wars about? Of course, in past commodity cycles nations went to war after getting constrained for lack of resources. Japan's access to petroleum and minerals was a major factor in the outbreak of war in the Pacific at the onset of WWII. And others.

But I think (and you'll doubtless conclude it's just my whacked out peakster brain turning down blind alleys) these precedents are serving to distract scrutiny today from the fact that the natural resources on earth this time really are (yes, it really is different this time Virginia) arriving at a point where the ratio of remaining resources is critically dwindling against the scale of humanity that's surging forward into industrialisation.

They (the three billion earning between $500 and $5000 dollars a year), want what they saw everyone else get in the glossy hollywood movies of the past hundred years, and they are going to be seriously pissed off to discover they can't have it all because the resources (first and foremost energy) to build it all into full technicolor reality start sputtering out.

Here's an outrageously out-of-the-box idea - looked at rationally, (despite many people's potential incredulity here) there's an increasing likelihood there won't be another traditional "commodity cycle" on this earth, which is rapidly becoming a pretty meagre ball of dirt struggling to support it's resident 6.5 billion microbe strong "human mange" as one of the more globally aware contributors to this website has so caustically put it.

You can dream all you like about cargo boats to the satellite Titan mining minerals, natural gas and petroleum, but this hard asset cycle is going to be different from all the rest, because if you start reading around, all mining is reporting dwindling grades and returns in most areas. Of course they appear to be vast remaining reserves, when viewed from the perspective of someone growing up in the 1960's, 1970's or even 1980's, and relative to the population numbers of those decades, but these reserves are becoming increasingly puny for the population that's destined to arrive in 2020 like a train right on schedule.

The trick to understanding the notion of a "final commodities cycle", and it should be a very straightforward insight for all the supple minds in this community, is simply that when consumer numbers get big enough, the progression of their natural evolution relative to their fixed resource endowment speeds up. Remember the petri-dish analogy with complex carbohydrates in John Michael Greer's article "The Innovation Fallacy" ?

It's here in case you did not factor it in:

http://www.itulip.com/forums/showthr...16332#poststop

Industrialising SE Asia and all the other's joining this concerted consumer party are just history's quirky trigger, that will tip depletion into crisis a little sooner. The "transition" to "alternate fuels" which you take for granted and iTulip has assured us categorically will provide a "gradual" transition to a new indusrtrial society weaned from fossil fuels, should in all honesty be recognized to be an article of faith. To be quite frank, we actually have no informed idea at all how this transition will work. It's what is called a "first time event without precedent".

An analogy could be made to the scene in Ridley Scott's movie "Thelma and Louise" where Susan Sarandon and Geena Davis are sailing off the cliff in a splendid grandiose Cadillac Fleetwood. You can say anything you like en route to a world of 6.5 billion car drivers sucking up hydrocarbons in traffic jams and on freeways, but no-one can model whether this Cadillac is going to grow wings or not before coming in for a landing. It can grow wings, because we are talking about technology's dazzling potential, but no one can claim this is "assured", or even claim it is necessarily "likely". Those are just guesses.

I see a harshly disorderly transition coming - those of us already in our middle years are going to spend our late years in a fairly uncertain world - and it's all going to be due to energy, not the monetary inflation everyone is babbling about now. Maybe after that it gets better, but anyone who claims the "alarmists" are full of baloney is in my view most certainly speculating themselves. I think anyone assuming a posture of relaxed scepticism that there is any real risk in the transition to "alternate fuels" in the next two decades is not employing the same due fear and caution they would if their own family's personal safety were on the line.

My take is that anything I hear sounding like "read my lips - the transition will be gradual" must by definition be a guess, as this event has never been test-run before. This is a rational doubt, isn't it?

So if there's a short way to summarize the point here it's this. iTulip "implies" money governs petroleum price overwhelmingly, and that monetary flows in our fiat world govern a lot else besides. They are miles beyond me on 95% of the other manifestations of fiat systems, and I defer to them on that, with considerable deference and respect. FIRE economy as the parallel economy? Yes, it sounds like a superb deconstruction of our cardboard economy. I'm 100% on board here, and I would pray that those crafting these interpretations see my sincerity.

But I do have one exception - I think that energy today, and even in the past 300 years, is the final arbiter of a society's access to wealth. "Money" spins out from the more fundamental attribute - "wealth" - which in industrial societies spins out from access to affordable energy. In the end energy governs wealth, because the lack of it will stunt wealth down to a whisper. And I submit, in my sublime simplistic naivete', that this age old heirarchy between "money" and "energy" should be obvious.

EJ's thesis at present seems focused mainly on monetary inflation, and somewhat removed from his earlier published thoughts about the 1970's, where the real price of energy was a fundamental cornerstone of the whole inflationary thesis, and where inflation was acknowledged to spring from this "fuel material" known as oil. So iTulip's thesis today about what they think is really going on with petroleum to me seems to leave a critical aspect unexamined. Critical, in the context of everything described above where we may be entering the "last commodity cycle", is an understatement.

JK asked me "well but what's the point of all this discussion and lather - what do you want to do about it"? Why should he even ask that question? You discuss other topics here endlessly, like derivatives - ad nauseam - without feeling any pressing need to derive any smallest civically directed action plan from them, to go out and do something dumb, like try to heroically change the world.

YOU - (and here I'm addressing this to all iTulip readers who are apathetic on resource depletion issues) discuss those topics, like derivatives, merely out of fascination to understand them. This is the hobby that interests you. The fact a pressing need is discerned here to "figure out what to do about this peak oil pain-in-the-ass topic" and (gratefully) move on to (yet more) discussion of defauting lenders and (yet more) derivatives is merely a way of saying, that this entire topic about 3 billion people about to appropriate your future gasoline supply and strand your ass in some wretched ubiquitous suburb is only marginally interesting to you.

Listen, you can equate any disinterest about understanding our global energy dilemma (soon to be showing at a theatre near you), to the image of Thelma and Louis, cruising down to earth in mid flight, in that glorious Cadillac Fleetwood that's flying off a cliff, while they are engrossed in a conversation about stock portfolios and structured investment vehicles and defaulting lenders.

If I were in that flying Cadillac with you, nattering about imploding CDO's while you approached the splat-zone, I'd throw myself out in despair, just to meet the ground on my own terms.

[jk]

Re: The Ambiguity of what's happening in Oil vs. Inflation

JK asked me "well but what's the point of all this discussion and lather - what do you want to do about it"? Why should he even ask that question? You discuss other topics here endlessly, like derivatives - ad nauseam - without feeling any pressing need to derive any smallest civically directed action plan from them, to go out and do something dumb, like try to heroically change the world.

lukester,

everything i discuss here has immediate application in how i manage my investments. i'm self employed; i have no corporation that will provide for me in the future; it's on me to invest my savings and at least keep them worth something if not grow them somewhat. that doesn't mean that every post leads to a trade. my major investment style is like ej's: i take major positions and tend to hold them for a prolonged period, though i also do a little trading around the edges as i adjust my percentage allocations to reflect my shifting sense of the probabilities of various scenarios. i communicate with a few people outside this board about financial matters, in the hope of offering some useful advice, but my experience is that my advice is usually ignored if it doesn't fit with someone's preconceptions.

i ask you again, what should we be doing differently if we agree with you? are there courses of action, either financial and/or political you recommend? you still haven't answered that question,

if there is no course of action you recommend, say so. if you think we need to monitor certain events which will tell us in the future that there are certain actions we should take, tell us! otherwise, what's the point? or are you suggesting we discuss peak oil scenarios as an intellectual recreation?

[lobodelmar]

Re: The Ambiguity of what's happening in Oil vs. Inflation

Lukester, very interesting and well written answer.

I agree with JK's question above though...

if there is no course of action you recommend, say so. if you think we need to monitor certain events which will tell us in the future that there are certain actions we should take, tell us! otherwise, what's the point? or are you suggesting we discuss peak oil scenarios as an intellectual recreation?

Your point of view on this issue is certainly valid. As a macro issue, this one is of concern to many people on this board, just as on a macro level the effects of climate change, war with economic competitors, etc are something to consider. Insurance companies, at the least, take these kinds of things into account in their actuarial tables when pricing risk. So, how do you suggest iTulip bring this into the discussion? I think we are just confused on how to handle your concern.

Yes, there is endless discussion on iTulip on things I don't know much about, derivatives, level 3 accounting, etc. It is part of the learning and the reason people come here to get a better understanding of what it all means. Sorta like why I watch the Daily Show to get "real news"...since it is the alternative media that actually gives you real things to think about.

Anyway, I appreciate interesting discussions like this...

[FRED]

Re: The Ambiguity of what's happening in Oil vs. Inflation

Lukester, very interesting and well written answer.

I agree with JK's question above though...



Your point of view on this issue is certainly valid. As a macro issue, this one is of concern to many people on this board, just as on a macro level the effects of climate change, war with economic competitors, etc are something to consider. Insurance companies, at the least, take these kinds of things into account in their actuarial tables when pricing risk. So, how do you suggest iTulip bring this into the discussion? I think we are just confused on how to handle your concern.

Yes, there is endless discussion on iTulip on things I don't know much about, derivatives, level 3 accounting, etc. It is part of the learning and the reason people come here to get a better understanding of what it all means. Sorta like why I watch the Daily Show to get "real news"...since it is the alternative media that actually gives you real things to think about.

Anyway, I appreciate interesting discussions like this...

We've created a new thread with Matthew Simmons' latest scary :eek: presentation as grist for the Peak Oil discussion mill. Go there now.

[touchring]

Re: The Ambiguity of what's happening in Oil vs. Inflation

grg55,
re: majors' reserves
my understanding from some material of matt simmons is that the contracts that the majors have with various nations changes the profit split once some base dollar value of oil is pumped. the implication was that high oil prices would cause the dollar value of oil extracted to quickly reach the contractual thresholds. once reached, the majors' share of profits would be cut sharply. my conclusion was that this was a reason that majors did their planning based on low prices. if they assumed high prices, they would also have to assume that they would quickly lose a big share of profits. to your knowledge, is this understanding correct?

About this big oil thing, has anyone noticed that canroys/canadian energy trusts are still going up?

btw, after reading a bit here and there, i got a consensus that oil is more overbought than gold. Seems that oil is getting a little too risky?

[Guest]

Re: The Ambiguity of what's happening in Oil vs. Inflation

JK -

First of all just so you understand, I really appreciate all your writing. In fact I think you are one of the best iTulipers, very smart, and with a superb personal modesty. Behind all the smart posts I see a very decent man as well. I approve of you to the extent that I look up to you (and the Bartster, and the Finster, [wish he'd show up around here again] - and also very much EJ too!).

So please relax. I am leveling criticisms, but it's out of considerable respect for all of you. Although iTulipers may feel the challenge here is unfriendly, actually it's not. We really are just talking among friends here.

However your point, that all the many posts you contribute here are strictly geared to improving your investments seems a little labored as a rationale to me. Let's agree that a great portion of what people post here is out of curiosity and interest, and frankly to my mind that's a far better reason to be posting than merely in the narrow pursuit of investment return money.

If you can make a solid 300% from gold bullion across an inflationary decade [the EJ and Charles Mackay trademark style of investing], why all the miles and miles and reams of analysis here, merely to discern 101 alternative ways go get money going from A to B?

So I reiterate, "what do you propose to do about it" regarding my posts on energy depletion, to my view is a question with a double standard, because very little else posted on these pages is really much other than a pure dscussion aimed at discovery. And I approve of pure dscussion aimed at discovery.

I have not got a clue what to do about petroleum depletion or mining depletion. One really intuitive thing people probably do is buy some of the things that are getting depleted and make some money. Frankly, the obessive focus which examines every single topic here for "how can I make some money from it" seems a bit dreary to me after a while.

Proabably all the discussion on alt energy, resource wars, and quantifying how much competitive currency devaluations are actually determining the oil price - these things all seem an excellent basis for discussing resource depletion. But the ratio here of discussion of << Mortgage Collapse / CDO / SIV / FIRE economy >> vs. depletion topics is something like 97% - 3%. Right?

So you can observe that one of these topics is "the main course" and the other is like a forlorn appendix. My comment might be simply an observation that you could double the amount of discussion of resource scarcity derived inflation and it would still be a mere appendix around here. Considering the size which this topic will occupy in all our lives in ten years, this is quite remarkable. Of course when you note in ten years that this topic really is looming large in all our lives, this reminder from me ten years earlier will be long forgotten.

With regard to petroleum's lofty price being merely an inflationary manifestation - here's a trenchant question for you. iTulip regards that price as 70% - 80% "manufactured" by currency debasement, right? So that "high price" of oil is like Wonderbread - there's little of real substance inside, and all the agitated commentary here about "why is the oil price so high" is terribly naive?

Tell me why then have the oil rich nations amassed such massive real wealth in the past six or seven years? If all those petrodollars are just an illusion of real price rise, and thr rise in the oil price, and the rise of the CRB are just inflation, why do these nations have enough real money purchasing power a mere seven years later, to buy a few small other nations outright at this point? A decade ago their balance of payments was abysmal. Where is all the real wealth coming from if 70% of the oil price rise is ilusory inflation??

This is where rude common sense would seem to suggest that there is a hole in iTulip's thesis, which claims repeatedly that the soaring price of oil means very little in real terms.

Contrary to what my (other) long post above would suggest, I'm actually fairly laid back on "peak oil" and any other "save the world issue". I was born and raised in Italy, and Italians are notorious for sort of taking it easy and not getting into a real lather about much. I tend to regard humorously (or cynically) all attempts to "save the world", and would certainly not bore you to tears about it at a cocktail party. If you winced at the mere mention, out of sensitivity to your good humour I'd quickly shelve the topic. But maybe these forums are not the equivalent of a cocktail party, for the suitability of effervescent chit-chat?

The ONLY reason I post on this one topic so insistently is that based on the very broad generalizations I read around here six or ten months ago on the "Peak Oil" topic, at that time there was some really silly outright denial that there was any scrap of factuality to this topic - and that view seemed to encompass about 65% - 70% of the readership around here. If you recall we hashed it out with some acrimony. You may regard all that acrimony as a regrettable waste of time.

Of course now that everyone is moderately acknowleding there "may be something to oil scarcity after all" everyone chooses to forget a mere year ago the threads here would bloom with flowery derisive commentary about the "peaksters". Remember? How times change. It's getting a little more awkward to sound derisive as oil creeps over $100.

Resulting directly from everyone having spent a little time (somewhat reluctantly) discussing the details of what may be causing oil to rise, I noted a slightly more accepting view of the reality of "expensive oil" around here, with many socially paranoid caveats that this did not mean these people wanted any truck with the "Peaksters" !! :rolleyes:

But you may forget that what appears a slightly more informed attitude today was due directly to having hashed some of this topic out a little "acrimoniously"? It may be that some good came out of all the acrimony?

Remember "Cornucopianism" and the very solemn debate as to whether oil could indeed gurgle bountifully from the Earth's core? Remember how at that time, not a single person around here even stepped forward to volunteer this whimsical idea is about as scientific as the rejection of Copernican astronomy? I had to wind up in a slightly acrimonious debate with the CEO here to get anyone to step up and acknowledge this was scientific bunk? How short is memory, and how sweet is progress...

I see a lot more of that reluctance, a kind of "stupidity factor" social stigma (pin the tail on the donkey) regarding the scale and scope of petroleum depletion. Mark my words though, when we see Petroleum at $200 a barrel in four or five years iTulip will have made a quiet and discreet claim that they were on top of the fundamental drivers of this issue all along because at that point that issue will be front and center in the news. I think there is great reluctance here even today to acknowledge that 60% ++ of the oil price rises right now are due to razor thin or nonexistent spare capacity. See what it is that irks me?

ITulip simply does not "do" Peak Oil, and it's primarily out of an inordinate fear of seeming silly to all the senior peers who are their sources and interlocutors at high levels of business worldwide. If iTulip started uttering anything with a voice more than a whisper about peak oil, many of these partners in business would look at Janszen as though he'd lost his mind.

In the process of avoiding that liability to one's reputation, iTulip does not realise that some very credible people (the smartest ones, with the least socio-political hangups) are suggesting to him implicitly in their ongoing dfiscovery of this topic's deep implications, that he's missing putting some real coverage squarely on the one theme which will become the biggest story of all in ten years. This will flower into a story so big that today's deconstruction of structured investment vehicles will pale in comparison. Mark it on your calendar, and remember this comment when it arrives.

[jk]

Re: The Ambiguity of what's happening in Oil vs. Inflation

first, lukester, i do not feel that i am being criticized or attacked by you. this is discussion, and fine and appropriate.

as i have said from the beginning of these discussions, i believe even back a year or more ago when some people were totally skeptical about the peak oil thesis, i agree with you for the most part.

when i said that i see little difference between your position and ej's, i meant it. i think there's a difference over how turbulent or even violent a transition we may have to lower oil consumption, but not over whether such a transition will in fact occur. now, when it will occur is a question up for grabs.

i think one key datum will be how the price of oil reacts when the u.s. enters recession. u.s. demand will drop in a recession, and if it's a global recession, so will demand elsewhere. how much, i don't know. so if oil prices hold relatively firm [and i can't put a number on this, i don't know enough] that will tend to support the argument that we are at the peak right now.

on another point, i have to admit to being a bit disingenuous about saying that my posts and reading here are solely to inform my investments. yes, they do inform my investments, and i disagree that there is no need for ongoing discussion and thought if one takes big positions and trades rarely. if you reread ej's description of his method of investing, it's "research, evaluate, research, evaluate, etc" for many iterations before making a significant trade. that process is always ongoing. but i have to admit that i also find these discussions entertaining and stimulating. they help me think and they make me think, and i like that.

but i don't know anything about oil and mineral geology, depletion, business organization, and so on. so i have nothing to offer there.

[Guest]

Re: The Ambiguity of what's happening in Oil vs. Inflation

JK -

There is a forthrightness in the way you answer every question squarely head-on and with complete candor. This is exemplary, and I very much admire it. I'd vote you for Ron Paul's running mate any day (does not mean you'd want the job though!).

[GRG55]

Re: The Ambiguity of what's happening in Oil vs. Inflation

JK -

There is a forthrightness in the way you answer every question squarely head-on and with complete candor. This is exemplary, and I very much admire it. I'd vote you for Ron Paul's running mate any day (does not mean you'd want the job though!).

Way to go Lukester. Now what's Rudy going to do??? :rolleyes:

[Guest]

Re: The Ambiguity of what's happening in Oil vs. Inflation

I dunno GRG55 -

We gotta ask DA BEAR, he's the one who's following "Rudy Julie-Annie". Gotta ask DA BEAR on a good day, like after the minders have shot him full of those horse-tranquilizers?

Speaking for myself, I've got a (small) soft spot for Giuliani. Something about being a fellow WOP from New York I guess.

He was very good at cleaning up New York's crime mess, and he was a damn fine DA before that. Put the fear of Hades into some dirty pols back in the day. I don't know how sold out he is to the GOP machine though - others here may have a more savvy assessment of his integrity than I do.

But us WOP's gotta stick together, know whaddeyemean? Like the Teamsters !?? :rolleyes:

[Guest]

Re: The Ambiguity of what's happening in Oil vs. Inflation

Thanks Fred.

BTW I'm one of your biggest boosters around here, even though sometimes I wonder if the beer I had in the evening is causing me to see double (hic!).

[Spartacus]

Re: The Ambiguity of what's happening in Oil vs. Inflation

There is a possibility that the downlope will be more cliff-like than we've seen in the past.

When Hubbert did his work the only technology was to punch a hole in the capstone (various sulfate compounds layered with salt deposits) that cover a resevoir, drill into the resevoir and you get oil coming out. With this simple extraction technology the tail end of a producing well's life is long and decline is not too steep.

Since the late 70s we've had several technologies that make the upslope more rapid - injection (steam, water, CO2) and multiple contact something or other.

There's also cracking or fracking techniques for natural gas - basically splitting the rocks so the gas will flow faster.

these let you get the oil out faster from a resevoir, but this steepens the downslope.

The North Sea's wells (which extensively used these technologies) have declined far faster than any previously producing (old technology) region.

I don't have the exact speed comparisons at hand

a "peak" in oil means that there is a downslope, not necessarily a cliff, on the other side of the peak. i don't assume that the "peak oil" position implies that the world runs out of oil.